Chapter 14: Operations Management



Chapter 14: Operations Management

Section 14.2 - Value Chain Management

Key Terms

• Value

• Value chain

• Value chain management

• Supply chain management

• Business model

• Organizational processes

• Intellectual property

Summary

Closely integrated work activities among many different players are being made possible through value chain management. The concepts of value chain management are transforming operations management strategies and turning organizations around the world into the finely tuned models of efficiency and effectiveness, strategically positioned to exploit competitive opportunities as they arise.

Customers want some type of value from the goods and services they purchase, or use, and these end users determine what has value. Organizations must provide that value to attract and keep customers. Value is the performance characteristics, features, and attributes, or any other aspects of goods and services for which customers are willing to give up resources (usually money). Through the transformation of raw materials and other resources into some product or service that end users need or desire in the form they want, when they want it.

The simple act of turning a variety of resources into something that customers value and are willing to pay for involves a vast array of interrelated work activities performed by different participants. The value chain is the entire series of organizational work activities that add value at each step beginning with the processing of raw materials and ending with finished product in the hands of end users. Value chain management is the process of managing the entire sequence of integrated activities and information about product flows along the entire value chain. In contrast to supply chain management, which is internally oriented and focuses on the efficient flow of incoming materials to the organization, value chain management is externally oriented and focuses on both incoming material and outgoing products and services.

In value chain management, ultimately customers are the ones with the power. They’re the ones who define what value is and how its created and provided. Using value chain management, managers seek to find that unique combination in which customers are offered solutions that truly meet their needs and at a price that can’t be matched by competitors.

A good value chain is one in which a sequence of participants works together as a team, each adding some component of value such as faster assembly, more accurate information, or better customer response and service—the overall process.

The dynamic, competitive environment facing contemporary global organizations demands new solutions. Understanding how and why value is determined by the marketplace has lead some organizations to experiment with a new business model—that is, a strategic design for how a company intends to profit from its broad array of strategies, processes, and activities.

Successful value chain management has six main requirements:

1. coordination and collaboration,

2. technology investment,

3. organizational processes,

4. leadership,

5. employees/ human resources, and

6. organizational culture and attitudes.

There are several significant benefits that organizations receive from value chain management:

• Increased sales

• Cost savings

• Increased market share

• Inventory reductions

• Improved quality

• Accelerated delivery times

• Improved logistics management

• Improved customer service

Managers must deal with several obstacles in managing the value chain. The primary obstacles to having an efficient and effectively operating value chain management process include organizational barriers, cultural attitudes, require capabilities and people.

Section Outline

Value Chain Management

A. What is value chain management?

B. What are the goals of value chain management?

C. What are the value chain management requirements?

1. Coordinating and collaboration

2. Technology investment

3. Organizational processes

4. Leadership

5. Employees/Human resources

6. Organizational culture and attitudes

D. What are the benefits of value chain management?

E. What are the obstacles to value chain management?

1. Organizational barriers

2. Cultural attitudes

3. Required capabilities

4. People

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